Chinese companies are increasingly facing difficulties in collecting payments due to a sluggish domestic economy.
According to the National Bureau of Statistics of China, as of the end of July this year, the accounts receivable of large industrial enterprises in China reached 28.88 trillion yuan (approximately $4.5 trillion), an 8.5% increase from the previous year, as reported by China Finance Online on the 14th. During the same period, product inventory also rose to 7.27 trillion yuan, marking a 10.8% increase. Notably, the average collection period for accounts receivable has extended to 71.9 days, which is 0.9 days longer than the previous year.
The pace of increase in accounts receivable is accelerating. The growth rate of accounts receivable as of the end of July this year is 3.8 percentage points higher than the 4.7% recorded at the end of last year. This indicates a growing trend of companies accumulating receivables on their books without receiving payment for products sold or services rendered. Even if the profitability of Chinese companies improves, a lack of actual cash inflow can lead to liquidity crises.
Long-term trends reveal a more pronounced issue. At the end of 2016, the accounts receivable of large industrial enterprises in China stood at 12.6 trillion yuan, with an average collection period of 36.5 days. Over the past decade, the balance of accounts receivable has increased by approximately 2.3 times, while the collection period has nearly doubled.
The situation is even more severe for small and medium-sized enterprises (SMEs). A survey conducted in the second quarter of this year by the Big Data Research Center at Peking University found that over 60% of SMEs reported having accounts receivable in the current period. Among them, about one-sixth indicated that their receivables exceeded twice their quarterly sales. The average cash flow maintenance period for the surveyed SMEs was only 2.8 months. Additionally, 11.6% reported that they could not sustain normal operations with their available cash, and 21.5% indicated they could run out of cash within a month.
Meanwhile, the General Office of the State Council of China issued a notice on the 10th aimed at strengthening the management of payment collection difficulties faced by SMEs. The notice encourages large enterprises, particularly leading companies, to fulfill their commitment to pay SMEs in cash within 60 days after receiving goods, construction, or services. It also mandates that various government departments conduct joint discussions and corrective actions against large enterprises that intentionally extend payment deadlines.
* This article has been translated by AI.
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